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Maven: HSBC's Rancid Rhetoric

Marek Fuchs

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Investors might think a darker phrase had never been spoken than, "It's different this time." Actually, one has: "It won't happen again." Now, realizing that at certain points in business cycles, certain practices tend to repeat themselves with tedious regularity, and knowing that it's always hard for lenders not to give in to temptation, we can almost see the stink fumes rising from these two particular cans of rhetoric.

Wise investors are well advised to go into a state of extra alertness when they see or hear these rancid words.

That's why, when I saw that second set of famous last words uttered by HSBC(HBC) head honcho Michael Geoghegan and then showcased in the lead -- the first four words, no less -- of a Financial Times article, well, silly me, I believed that some critical thought would be employed. I believed that maybe putting these words atop a podium was a setup for the caution to come. But no, silly Maven.

Geoghegan, who has one of The Business Press Maven's favorite CEO last names, has led HSBC for less than a year -- a blink in time. He spoke about all manner of misjudgment in the company's U.S. consumer loan portfolio. In short: If it had a pulse and wanted a house, the lender formerly known as Household Finance -- since acquired by HSBC -- would find it qualified and blithely and dumbly dole out a loan.

I don't have my hip waders handy so I won't step into the resulting consequences, what with interest rates slightly higher and the housing market more frail by the day. (What was that creak I just heard? More value dropping out of my house.)

But look how the Financial Times sums up in its third-to-last sentence, serving the role of HSBC spokesman. How does this independent media outlet react to those famous last words, made by a very raw and unproven management? Does the FT skewer management or at the very least raise a big, hairy eyebrow so that any investor, reading on a train or at a breakfast table full of unruly children, who might have missed it won't be fooled?

Nope. Wishful thinking.

This is what the FT has to say about HSBC's Eddie Haskell-esque promise that it won't happen again: "It is good news that HSBC's senior management is focusing on running a tighter ship."

Let me turn on a fan to blow away some of the stench. There. Now I'll put these comments in proper perspective and, by extension, put this thin claim in proper perspective for all time. Here's how the last line should read, according to The Business Press Maven: "It is perhaps good news that HSBC's unproven management is at least giving lip service to running a tighter ship."

On a separate but equally dangerous topic: When are basic business facts insufficient, as useless for getting at long-term financial truths as the Sunday comics? When does a tiny butter-pat pile of these assembled facts actually give you the illusion that something is way better than it is?

That's an easy one: When the business media are writing about an undeservedly hot IPO in just-the-facts-ma'am mode. But by adding a little thought and opinion to those same facts, the media can leave the investor with a much better sense of reality.

The topic here is Fortress(FIG), the nation's first public offering of a hedge fund and one of the biggest trapdoors for investors that The Business Press Maven has seen since the likes of CMGI(FCMGI), the Internet incubator and helper of young Internet companies, which came public in the 1990s to similar fanfare. The rest, as they say, is (margin call) history.

Anyhow, part of the similarity is the double exposure investors are faced with. With CMGI, as if there weren't enough exposure in the market to fly-by-night Internet concerns back then, you were effectively doubling up by gaining exposure within that larger exposure. In doing so, you ran the danger of the DTs: the double tanks.

To which The Business Press Maven says, tanks but no tanks.

The other similarity is absurd valuations. To be fair, Fortress has a better income picture than most of the Internet incubators did, but its income is also unreliable.

Hold the hem of The Business Press Maven's shirt while he walks you through two different articles on the same subject.

CNNMoney.com assembles all the facts but focuses on how much money everyone involved made. Superficial city. The headline is a bit breathless: "Fortress execs hit $10 billion jackpot: In the country's first public offering of a hedge fund, the stock price soars -- turning the fund's owners into some very rich men."

Never you mind that they were already quite rich, and the rich getting richer ain't exactly headline-worthy. We read all about the stock prices with predictable verbs such as "pop," and all about the holdings. But we read nothing, not a single fact or, more importantly, thought, that would help investors. Contrast this with the Financial Times' piece, which is comparatively fat-free in terms of facts, giving just the basics, but lays out why Fortress' income stream doesn't deserve such a valuation.

If a company put itself up for sale in a forest and no one was there to buy, would there still be a sale? I pose the question that might very well come back and bite me about Bristol-Myers Squibb(BMY).

As you know, The Business Press Maven went apoplectic a couple of weeks ago when a completely unsourced and obscure French newsletter reported the imminent takeover of Bristol-Myers by Sanofi-Aventis(SNY). That's their right, I suppose. But the media ran with the report so quick and hard that the issues of obscurity and lack of sources were overlooked.

And Bristol-Myers still hasn't been touched. Indeed, this weekend The Times of London reported that talks between the two companies have collapsed.

Now The Wall Street Journal's Heard on the Street column is doing something not seen in that space since the R. Foster Winans went from newsroom to prison yard for insider trading on his column a generation ago: The column has taken a stance; in this case, that even if Bristol-Myers is taken over (old dreams die hard) this might be a good time to sell, because the takeover is priced into the stock.

Truer words were never spoken, especially compared with that it'll-never-happen again canard.